MEDIA CLIPPING

WASHINGTON -- In 2001, the new Bush White House sought
suggestions for government regulations to kill or modify. A small
think tank called the Mercatus Center named 44 it didn't like
-- among them, rules governing energy-efficient air conditioners
and renovations to electric-utility plants.

Ultimately, 14 of the 23 rules the White House chose for its
"hit list" to eliminate or modify were Mercatus entries
-- a record that flabbergasted Washington lobbying heavyweights. A
year later, the National Association of Manufacturers failed to
persuade the administration to embrace even one item on its
regulatory wish list. Now it's trying to copy Mercatus.
"We said, `Why were they more successful than we were?'
" says Lawrence Fineran, the manufacturers' vice president
for regulation.

When it comes to business regulation in Washington, Mercatus,
Latin for market, has become the most important think tank
you've never heard of. Staffed by veterans of the White House
office that reviews and often scales back proposed rules, Mercatus,
with its free-market philosophy, has become a kind of shadow
regulatory authority. The White House's top regulator, John
Graham, was briefly a member of Mercatus's board of advisers
before taking the government post.

Many well-known independent Washington think tanks, such as the
Brookings Institution or the American Enterprise Institute, issue
analyses of regulations, but usually only on broad themes or
prominent issues. Industry lobbyists -- representing, say, auto
makers or drug companies -- circulate views on more obscure
regulations, but with the specific purpose of boosting their
sponsors' profits.

Mercatus is a rare hybrid. It is considered an independent think
tank because it's part of George Mason University and gets
funding from many sources. But Mercatus issues biting opinions on
dozens of rules, including little-known ones that only lobbyists
usually get excited about.

"Mercatus is the only academically respectable place I know
that does what K Street lobbyists do," says Peter Van Doren,
editor of Regulation magazine, a journal published by the
libertarian Cato Institute. "They follow the minutiae of
regulation to see how rules will affect particular
industries."

Mercatus posts tips about new regulations on the RegRadar page
of its Web site, dubbing rumored regulations "UFOs." It
hosts workshops on Capitol Hill to court congressional staffers who
delve into regulatory issues. To boost its visibility, Mercatus
recently hired two former congressmen, a Democrat and a
Republican.

Mercatus analysts amplify their impact by talking the language
regulators understand. In formal comments, they detail whether
costs of a new rule exceed the benefits, whether rules disadvantage
consumers or small businesses, and whether agencies have considered
less burdensome alternatives. Then they grade the proposals --
often giving Ds and Fs.

After a withering Mercatus critique, the Environmental
Protection Agency changed its mind about the benefits of a rule
that required utilities to kill fewer fish with their power plants.
At federal agencies, "if they know that Mercatus is working on
a rule, they'll be more careful," says Richard Belzer, a
former government regulatory official.

Mercatus's rise owes much to the oil-and-gas company Koch
Industries Inc., (pronounced "coke"), a privately owned
company in Wichita, Kan., that contributes heavily to Republican
causes and candidates. A Koch family foundation has given Mercatus
and George Mason University a total of $14.4 million since 1998,
according to public documents analyzed by the Public Education
Center, a Washington group that tracks environmental issues. A Koch
spokesman says about half of the money went to Mercatus. In
addition, the company's chief executive, Charles Koch, donated
interests in limited partnerships to Mercatus that the think tank
sold last year for $6.1 million. Mr. Koch is a Mercatus
director.

A predecessor to Mercatus was founded at Rutgers University by a
former economics professor, Richard Fink, who also started an
antitax group. Mr. Fink later moved the think tank to George Mason,
a Virginia state university that has become a center for
free-market economics. In 1990, Mr. Fink joined Koch Industries,
where he is now an executive vice president overseeing lobbying and
communications. He remains a Mercatus director.

Public Citizen, a consumer group founded by Ralph Nader,
dismisses Mercatus as "a wholly-owned subsidiary of Koch
Industries and other corporate interests." But Mr. Fink says
Koch has no intention of using the think tank to promote its
interests in oil and gas, although it has had run-ins with state
and federal regulators over pollution violations. Koch "has
other means of fighting its battles" in Washington, Mr. Fink
says. "We have never had a nonprofit advance our
agenda."

In 1998, Wendy Gramm, who headed the White House Office of
Information and Regulatory Affairs during the Reagan years, started
Mercatus's regulatory review group. She hired a small staff of
regulatory experts to work with economists at George Mason and
elsewhere. Ms. Gramm, wife of former Texas Republican Sen. Phil
Gramm, says Mercatus differs from special interests because it
analyzes "all impacts" of rules with the public interest
in mind. Over the past six years, Mercatus has filed 100 comments
to 31 agencies on rules ranging from auto safety to financial
regulation.

William Kovacs, vice president for regulation at the U.S.
Chamber of Commerce, says Mercatus acted as a coordinating center
for lobbyists trying to block a flurry of regulations that the
Clinton administration proposed in its last months in office.
Lobbyists checked Mercatus's Web site for news on regulations,
and sent information for Mercatus to post. Mercatus later put many
of these regulations on the suggested hit list it sent to the Bush
White House.

The Office of Information and Regulatory Affairs, which drafted
the actual hit list, says it chose so many Mercatus entries as high
priorities in 2001 because the think tank was ready with
suggestions and others weren't. "If there was a
problem," an OIRA annual report said in 2002, "it was not
that the Mercatus Center was too active but that other potential
commenters were silent." When OIRA sought new suggestions for
regulations to target in 2002, people got the message: The office
received submissions from 1,700 groups and individuals. OIRA
decided that was too many to sift through and ended up forwarding
them to agencies without drawing up a hit list.

Members of the Mercatus "Founder's Circle" of
contributors in 2002 -- those who give at least $10,000 -- included
ExxonMobil Corp., Fannie Mae, Freddie Mac, General Motors Corp.,
Gillette Co., Microsoft Corp., Morgan Stanley Dean Witter Co., the
New York Stock Exchange and Pfizer Inc. The Chamber of Commerce
recently donated $50,000 to Mercatus to research tort reform.

Mercatus says it isn't beholden to any company. After
Mercatus scholar Jay Cohran published a November 2001 report that
detailed mortgage giant Fannie Mae's government subsidies, the
company's top lobbyist at the time, Arne Christenson, chewed
him out over the telephone for not showing the study to Fannie in
advance.

Mr. Christenson says he felt blind-sided, and just wanted a
chance to present Fannie's views. "I considered Mercatus
to be a soul mate," he says. Mr. Cochran held firm. "Just
because you're the subject of the study doesn't give you
the right to shape it," he says. Fannie Mae no longer
contributes to Mercatus; Mr. Christenson, who has left Fannie, says
the incident didn't play a role in that decision. A Fannie Mae
spokesman declined to comment.

Mercatus's 29-person staff works from a warren of small
offices decorated with Mexican folk-art paintings in George
Mason's law school in Arlington, Va. The center spends about 9%
of its $6.8 million budget on its in-house regulatory program. Much
of the rest of the budget is devoted to seminars and outside
research on economic issues including regulation. Ms. Gramm stepped
down as director of Mercatus's regulatory unit last year,
although she remains a Mercatus fund-raiser. She was succeeded by a
protege, Susan Dudley, who had worked for Ms. Gramm at the Reagan
White House.

Ms. Dudley, a 49-year-old graduate of Massachusetts Institute of
Technology's Sloan School of Management, specializes in
environmental regulation and drives a 2001 Toyota Prius hybrid to
work with her husband, another alumnus of the White House
regulatory office who ended up at Mercatus. She calls herself a
"free-market environmentalist," explaining she wants to
protect the environment through "market-based
incentives."

One example of how Mercatus works the system was its 2003 effort
to blunt an EPA rule on how many fish a power plant could kill when
it sucked in river water for cooling. The rule would cost utilities
money while benefiting commercial fisherman by giving them more
fish to catch. The EPA argued that there was an additional benefit:
the "sense of altruism [and] stewardship" consumers would
feel by protecting river ecosystems. It contended this was worth
hundreds of millions of dollars -- more than the benefit to
fishermen.

Ms. Dudley and another Mercatus researcher poked at the
calculation. They found it rested in part on a study of consumers
in affluent eastern Long Island who were asked whether they would
be willing to pay to protect the wetlands. By the EPA's logic,
Ms. Dudley argued in formal comments and an opinion piece in the
Washington Times last year, Americans "place a much higher
value on a fish swimming free than one on your plate."

The article was passed around EPA headquarters, and agency
officials say it added to the pressure on the EPA from the White
House and the Energy Department to drop the altruism calculation.
Mary Smith, an EPA official who worked on the rule, says some of
Mercatus's criticisms were overstated but the EPA didn't
have the time to do a fresh study.

The EPA issued the final fish-kill rule earlier this year, but
acknowledged that the economic costs of the regulation far outweigh
the benefits. Mercatus sees that as a victory because it helps the
think tank make the broader case that many environmental rules are
more expensive than they are worth.

Mercatus analysts sometimes contort themselves to build a case
against regulation. Ms. Dudley and Ms. Gramm criticized one EPA
rule to reduce surface ozone because the EPA didn't take into
account that clearer skies would increase the rate of skin cancer.
Later, two other Mercatus scholars blasted a different EPA rule on
diesel engines, arguing that it was bad because it would increase
surface ozone in some cities. This time they didn't say
anything about the cancer-prevention benefits of more smog.
"We didn't go to the next step," Ms. Dudley
acknowledges.

Lisa Heinzerling, a Georgetown University law professor, says
Mercatus "cites the most outlandish costs of regulation."
She helped organize a liberal think tank called the Center for
Progressive Regulation to counter Mercatus's influence.

Partly because of Mercatus's reputation for ideological
fervor, White House regulators have recently distanced themselves
from the think tank. The White House regulatory office has approved
a number of regulations that Mercatus criticized, including the
diesel-engine rule.

Over the past year or so, Mercatus has tried to broaden its
reach, hiring former Democratic Rep. Tim Roemer of Indiana. He has
made an effort to invite Democratic staffers to Mercatus seminars.
Another new hire is former Rep. J.C. Watts of Oklahoma, a
Republican.

In May Mercatus staged a session, funded by Gillette, for
staffers of the Congressional Black Caucus and the National
Association for the Advancement of Colored People. Mercatus
researchers argued that if lawmakers want to limit pollution, they
should try market-based solutions, such as trading emission
permits.

Although the Bush administration has drawn criticism from
liberals for easing environmental regulations, Ms. Dudley argues
that even under Republican rule overall regulatory costs continue
to rise. The answer, she says: more Mercatus studies to show the
real burden of red tape. "Clean air sounds so good," she
says. "But what are the costs? They're hidden."

Join Tyler Cowen and Peter Thiel in a serious dialogue on the ideas and policies that will shape the future of innovation and progress. This is the inaugural event of the Mercatus Center’s new Conversations with Tyler event series.